Government open to buying equity in highway projects, puts PPPs on hold

July 16, 2014

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The government is open to buying equity in some of the 189 stalled highway projects where Rs 1.8 lakh crore is locked up due to myriad pending clearances, in a bid to jumpstart the highway sector, which it believes can push up the country’s growth rate by at least 2 per cent over the next two years.

The NDA government has also decided to put all public-private partnerships (PPPs) in the road sector on hold for two to three years as just a few infrastructure firms have any capacity to invest in new projects.

With banks having stopped lending to the infrastructure sector, Prime Minister Narendra Modi and finance minister Arun Jaitley are also looking at alternative long-term and lower-cost financing from pension funds like theRs 7.5 lakh crore Employees’ Provident Fund, or EPF.

Most developers are either restructuring their debts or are saddled with projects that have turned into non-performing assets.

“Today, the country has just 4-5 developers who are not in CDR (corporate debt restructuring) or in NPA lists. For the rest, band baaja baj gaya hai, aisi haalat hai (they are in a shambles)… So the PPP model is not possible at all,” said highways, road transport and shipping minister Nitin Gadkari, Instead, the focus would be on new highway building through EPC, or engineering, procurement and construction, contracts for which the government foots the bill.

The PM has tasked Gadkari to lead a panel that would review all projects stuck in the infrastructure to lead a panel that would review all projects stuck in the infrastructure sectors of ports, roads, railways and airports every month and try to disentangle the mess left behind by the UPA government.

“I don’t want to blame anybody but the previous government didn’t even acquire 10 per cent land or procure forest clearances, yet work orders were given. The contractors achieved financial closure also, but they couldn’t start work for over two years, so banks withdrew their financial sanctions,” said Gadkari, explaining the logjam in highway projects.

The ministry has already resolved problems facing projects worth Rs 40,000 crore through intensive deliberations with developers and bankers and hopes to remove hurdles facing the rest of the projects worth Rs 1.4 lakh crore so that work can start on most of them by August 15.

“Most players want to pay a 1 per cent fine to abandon their projects and run away. I have told them, I will levy a 10 per cent penalty and blacklist

you so you won’t be able to do a single project for the rest of your life,” Gadkari said.

The four big reasons that projects are stuck, the minister said, were land acquisition, forest and environmental clearances, defence land tracts on highway alignments and delays in clearances for rail overbridges from the railways.

The road ministry is also creating a shelf of road projects worth Rs 2-3 lakh crore for which it would initiate work on obtaining green clearances and land along with detailed project reports,so that they can bid out as the sector revives.

Gadkari said that infra projects in today’s environment can only become viable if they get low-cost funds, since construction costs have gone up while traffic revenues have dipped. Bank lending rates are at 13 per cent while infrastructure bonds offer funds at 9 per cent.

“We are talking to countries where bank deposit rates are low, and hope to get around Rs 1 lakh crore from them for which we will give them 26 per cent equity in projects. I have also written to the PM and the finance minister to open up pension fund investments in infrastructure sector,” he said.

The minister said that a decision has been made to link the one lakh kilometres of national highways with optic fibre cables, gas pipelines and power transmission lines, preferably underground.

“We have decided to go for cement roads as they can now be 4 per cent cheaper than bitumen roads. I have spoken to four cement companies to consider this and have warned industry not to form a cartel and raise prices,” he said.

“American roads are not good because America is rich. But America is rich because American roads are good. So, I will try to raise the country’s GDP from 4.5 per cent by at least 2 per cent in the next two years through the highway and ports sector,” the minister said, speaking at an interaction with industry experts on Tuesday.

source: Economic Times